Don’t Let Procurement Negotiate Enterprise Software Deals – Part 2

How Did It Get To This?

For last week’s Retail Paradox Weekly, I interviewed three technology sales executives, who agreed to talk about what they see in the marketplace, what’s wrong with current processes, and what could be better. To net out the problems, they agreed that in an effort to avoid risk many retailers have gone to using Corporate Procurement and rigid RFP (“request for proposal”) processes that tend to (1) move negotiations towards a transactional and away from a relationship deal, and (2) that causes the retailer to miss new opportunities to transform current business practices.

To get to the bottom of the questions, “how did we get here? and “what is a better way?”, the sales execs made these observations.

First: there was Sarbanes Oxley. Said one of the interviewees, “any sales cycle has an emotional and a logical side. SOX had the effect of getting the people out of the process who abused relationships. And lets face it, there were abuses.”

The other part of the answer seems to be a reaction to past over-exuberant spending that did not yield the desired results. Well, if there’s a behavior that characterizes retail decision makers, it’s their long memories. To a great extent, technology vendors only have themselves to blame for creating a situation where procurement types would end up controlling the process.

The Hidden Cost Of A Transactional Deal

If a negotiation is highly transactional, the retailer shouldn’t expect the solution provider to be very sympathetic if and when there is trouble during an implementation. One sales exec elaborated:

“Once the procurement guy is done, he turns the project over to IT and the LOB’s (line of business executives). You know as well as I do that all of these projects all get into a ditch somewhere along the line. When a project gets into trouble, IT and the LOB’s need to be able pick up the phone, and if there’s no relationship, there’s no reason for the vendor to give them any help gratis. But if the retailer has established a personal relationship, he can pick up the phone and say, ‘we’re in this thing together and I’ve got this budget constraint, but we need some help’, and I’m going to see if I can figure out a way to do something free or highly discounted, or whatever to help the retailer get out of the ditch.”

A Better Way 

According to all three sales execs who talked to us, risk avoidance in the software acquisition process has gone too far, and now companies risk missing opportunities that new software solutions could open up. What’s the best way to fix that? Between the three sales execs we spoke to, these recommendations emerged:

  • Explain the opportunity. Retailers should have a kickoff meeting with prospective solutions providers to explain what they are trying to accomplish and why they are trying to accomplish it. Allow time for give-and-take, so that the solution providers walk away with a better understanding of the opportunity.
  • Get outside help. Whether it’s a Big Four consulting firm or subject matter experts, outsiders often see what other businesses do to address business challenges that your company faces, and can help you to import new ideas. Another resource is standardized RPF templates, such as those that NRF’s ARTS group has developed.
  • Own the relationship. The LOB and IT department will live with a software acquisition decision for a long time, and so the LOB and IT leadership need to be accountable for the negotiation as well. While procurement types can certainly help, relinquishing control to them creates plausible deniability – which is organizational poison.
  • Binary yes/no questions are too limiting. When asking providers about their solution’s capabilities, more info should be requested, such as, “if not today, when?” or “is it available as a customization? Have you made that customization before?” While this may make ranking the vendors’ competitive offerings harder, it’s worth the effort.
  • Give some indication of the importance of feature/function. Even a must have/nice to have ranking is more information than some companies give to potential software providers.
  • Test the possibilities. During demonstrations or conference room pilots, test what if scenarios. That outside help you brought on to help you should be a valuable asset.
  • Give yourself AND the software provider time to do a good job. Arbitrary and aggressive RFP response timelines create the likelihood of boilerplate responses.
  • Get to know your software provider. Set up interviews with key stakeholders, to understand the technology company’s vision, commitment to R&D, the quality of their people, and their ability to help you protect your investment over a long period.
  • Insist on a single point of accountability. To paraphrase something my mentor told me when I was just coming up, “after you’ve explored all the logical considerations, try to imagine relaxing over lunch with this person.”
  • Expect trouble. This sounds like a contradiction, but as has been pointed out, software implementation projects always experience problems. The question is, is there enough flexibility in the relationship with the software provider to enable a quick response? Or have you cut so close to the bone in the price negotiations that every unexpected to-do requires a change order?

It all boils down to something that RSR talks a lot about: relationships are worth more than transactions. Whether its retailers establishing relationships with customers, or technology companies establishing relationships with retail companies, the lifetime value of each relationship is worth far more than the sum total of transactions between two parties. That of course is why retailers work so hard to develop trust with their customers. The same should be true in the case of relationships between retailers and technology suppliers, especially when that which is being supplied is expected to empower the retailer to create differentiating value for its customers for years to come.